News: CJ Exclusives

State budget cuts taxes, raises salaries, and has money left for savings

Fourth straight revenue surplus left room to expand state budget

Senate leader Phil Berger, R-Rockingham, and House Speaker Tim Moore, R-Cleveland. (CJ photo)
Senate leader Phil Berger, R-Rockingham, and House Speaker Tim Moore, R-Cleveland. (CJ photo)

The $23.9 billion state General Fund budget proposal reduces personal and corporate income taxes and increases education spending by nearly $700 million. It gives raises to teachers, principals, and state employees, and still sets aside millions of dollars in state reserves. The 2018-19 budget was released Monday night in the form of a take-it-or-leave-it conference committee report allowing no amendments. Floor votes could take place by week’s end.

Joe Coletti, senior fellow at the John Locke Foundation who researches taxes and fiscal policy, said spending would increase 3.85 percent over the current budget. That appears to be in line with population growth and inflation, the target lawmakers have been shooting for.

A fourth consecutive revenue surplus allowed spending to keep rising. Even so, Coletti said, lawmakers spent $193 million from the surplus to meet costs.

The legislature leaves $561 million unspent this year, sets aside $221 million in the Savings Reserve, $135 million in the Medicaid Transformation Reserve, and $220 million for capital projects and repairs, Coletti said.

The budget spends $15 million for security in state prisons and more twice that in public schools. It sets aside money to mitigate GenX pollution in state water sources and provides grants and tax subsidies for giant “transformative” industries that come to North Carolina.

There’s money to expand broadband statewide. The budget funds highway construction, safety, and beautification, and blocks spending on light rail projects until all non-state revenue is in place.

“The main purpose of our short session is to make necessary adjustments to the sound, two-year budget that is already in place, and that’s exactly what our members accomplished,” Senate leader Phil Berger, R-Rockingham, said in a joint statement with House Speaker Tim Moore, R-Cleveland.

“[Gov. Roy] Cooper and legislative Democrats should add their support to this plan that prioritizes public education, provides a fifth consecutive teacher pay raise, and offers substantial tax relief for millions of North Carolinians,” Berger said.

“These budget adjustments secure a strong financial future for North Carolina by sustainably increasing state investments while ensuring relief for taxpayers, a balanced approach that has consistently proven successful in growing our economy, producing revenue surpluses and saving a record rainy day reserve,” Moore said.

Cooper’s stance on the budget, if it passes, isn’t clear. In a statement issued Monday night, Cooper’s spokesman Ford Porter didn’t say whether the governor would sign the budget, veto it, or let it become law without his signature:

It’s clear that the Republican legislature continues to leave veteran teachers and public education behind in order to protect their tax breaks for corporations and people making over $200,000 a year. There are still many more questions than answers in this budget as people try to read and understand major policy changes the Republicans have kept secret and are now forcing legislators to vote up or down with no way to amend it.

Among the highlights:

  • A scheduled $1.5 billion tax cut would reduce or eliminate state personal income taxes for 99 percent of taxpayers. The personal income tax rate would shrink from 5.499 to 5.25 percent in 2019, and more income would be exempt from state income tax. The corporate income tax rate next year would drop from 3 percent to 2.5 percent.
  • Teacher pay would rise 6.5 percent pay on average, while principals would get a 6.9 percent increase. The average teacher’s base pay has increased nearly 20 percent since the 2013-14 school year.
  • Increasing the share of lottery revenue going to school construction or upgrades would add $241 million for that purpose.
  • Boosts compensation for state employees by $200 million. All workers would get at least a 2 percent raise; correction officers would get 4 percent more. State Highway Patrol troopers get a roughly 8 percent average pay raise, and will reach top pay in six years. The minimum salary for all permanent, full-time state employees would rise to $31,200.
  • There’s a one-time, 1 percent cost-of-living increase for state retirees.
  • More than $18 million will provide pre-K education to 3,525 more kids. There’s also a plan to eliminate the pre-K waiting list for at-risk children by 2021.
  • The Medicaid Transformation Reserve would get $60 million to begin designing the state’s new Medicaid managed care program.
  • “Transformative companies” that invest at least $1 billion and create at least 3,000 new jobs in a single project would qualify for Job Development Investment Grants. Five-year funding for JDIG would rise from $10 million to $100 million for transportation-related improvements at projects and the per-project cap would go from $5 million to $10 million.
  • The Strategic Transportation Investments Program would get $135 million.
  • Capital projects at state and university facilities would get an extra $155 million; the repairs and renovations would go up by $65 million.
  • The new Growing Rural Economies with Access to Technology program would spend $10 million to expand broadband private internet service to the state’s rural areas and increase download speed.
  • More than $10 million would provide clean drinking water for those affected by GenX contamination and study the threat these compounds pose to drinking water supplies.

State Treasurer Dale Folwell said he was relieved lawmakers left a big-ticket item out of the budget: a $3 billion transportation bond.

Budget writers kicked the idea around as they prepared the spending plan. Folwell opposed putting the bond in the budget rather than putting it before voters.

While conceding the need for more transportation spending, Folwell said, “There’s only so much debt capacity, there’s only so much money.” For the state to maintain its AAA bond rating, reducing $50 billion in unfunded liabilities in the State Health Plan and retirement system must be a priority.

The pension plan is 90 percent funded, Folwell said. But the State Health plan is only 3 percent funded. It has $35 billion in liabilities and $1 billion in reserves.

Folwell said those unfunded liabilities need to be trimmed, or companies thinking of expanding in or relocating to North Carolina may have second thoughts.